Oak Ridge Mall property developers respond to suggested TIF change

Monday

Nov 18, 2013 at 11:20 AM

A Nashville attorney representing Crosland Southeast, the Charlotte, N.C.-based retail and mixed-use development firm that signed a contract in February to purchase the mostly dormant Oak Ridge Mall property, has drafted a response to an email sent out Thursday by a lone Oak Ridge City Council member to the Anderson County mayor and Anderson County Commission suggesting a change in the wording of a TIF resolution for the Mall redevelopment.

Darrell Richardson/The Oak Ridger

A Nashville attorney representing Crosland Southeast, the Charlotte, N.C.-based retail and mixed-use development firm that signed a contract in February to purchase the mostly dormant Oak Ridge Mall property, has drafted a response to an email sent out Thursday by a lone Oak Ridge City Council member to the Anderson County mayor and Anderson County Commission suggesting a change in the wording of a TIF resolution for the Mall redevelopment.

The original email from Council member Trina Baughn, which was sent out to local and state government officials at 10:57 a.m. Thursday, was also sent to The Oak Ridger at 10:58 a.m. Thursday. The Mall property developers’ response — though apparently sent to Anderson County Commission members and Oak Ridge City Council members within three hours after Baughn’s original Thursday morning email — wasn’t forwarded to The Oak Ridger until late Saturday afternoon. Consequently, Baughn’s “guest column” is printed in its entirety in today’s Nov. 18 print edition of The Oak Ridger and the Crosland Southeast response will be printed in The Oak Ridger’s next print edition on Nov. 19.

In part, Baughn’s missive states: “The developer (Crosland Southeast) has indicated an expectation for completion of the build out by December 2016. I encourage the (County) commission to discuss the inclusion of a risk mitigation clause … requiring that at least 65 percent of the planned new retail square footage be completed by December 2018 to avoid nullification of the agreement. Such an allowance would limit the number of years to a more reasonable timeframe should a worst-case scenario unfold while ensuring that some revenue is eventually produced for the benefit of the taxpayers.”

In the Crosland Southeast response, Nashville attorney Jim Murphy states, “I would like to respond to Ms. Baughn’s suggestion that the tax increment financing (TIF) funding for the redevelopment of the Oak Ridge Mall be nullified if at least 65 percent of the planned new retail square footage is not completed by December 2018. As has been explained by Ray Evans in the meetings of the Operations Committee and the Budget Committee, the proposed redevelopment of the Oak Ridge Mall requires a public-private partnership. After carefully reviewing the project’s pro forma, the city officials who have been involved in negotiating the incentives with Crosland were convinced that there was a funding gap of $13 million that could be bridged by the use of the TIF funding. Without that $13 million in TIF funding, the project would not go forward.”

Ray Evans of Oak Ridge serves as city consultant on the Crosland Southeast redevelopment project. Murphy continues: “To obtain the $13 million in TIF funds, Crosland will have to find a lender willing to loan the $13 million to the IDB so that the funds will be available at the time that Crosland closes on the acquisition of the Mall. That lender will have to be comfortable that the incremental increase in property tax revenues resulting from the redevelopment of the Mall will be sufficient to pay the principal and interest on the $13 million TIF loan, since the lender will have no recourse against the county, the city or the IDB other than the amount of incremental property tax revenues received by the IDB.

“Therefore Crosland will not be able to obtain a commitment from a lender to loan the $13 million to the IDB unless Crosland can convince the lender that there will be sufficient new development within the project to generate enough incremental property taxes to pay the principal and interest on the TIF loan. …

“Adding the proposed nullification language also makes the TIF loan impossible to finance as no lender will loan money that is to be paid back out of incremental tax revenues if the availability of those incremental tax revenues can be terminated before the loan is paid off. In addition the potential tenants that Crosland seeks to attract to the redeveloped project want to be assured that the TIF funding needed to make the project possible will be available when Crosland is ready to close on the land. Having the possibility that the TIF funding will not be available due to the fact that no lender will make a loan where the payment stream could be eliminated before the loan is paid off will prevent Crosland from securing the commitments from the tenants who are needed to make the project a success.”

Baughn’s letter went out just three days after her fellow Oak Ridge City Council members voted 6-0 to approve the Economic Impact Plan for $13 million in tax increment financing. Baughn abstained from that vote, stating concerns about supporting the timeline associated with the TIF.

The Oak Ridge Industrial Development Board recommended the TIF plan following a public hearing in October and the Anderson County Commission’s Operations Committee and Budget Committee approved the plan earlier this month.

As alluded to in the Crosland Southeast response, the full Anderson County Commission is scheduled to vote on the TIF recommendation today (Nov. 18) in Room 312 of the Anderson County Courthouse in Clinton — following a presentation on the city of Oak Ridge’s tax increment financing project for the Mall property which begins at 6 p.m.

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During the City Council’s last meeting on Nov. 11, Crosland Southeast’s Tim Sittema said the company has been working on the Oak Ridge project for most of the year and stated, “This is not an easy project.”

Crosland Southeast has proposed an estimated $85 million in construction costs to redevelop the Mall property and asked for the $13 million TIF plan that is to be recouped over a 20-year period through NEW property taxes in retail, business and residential activity.

“Following the model of the recent Aubrey’s/Panera site on South Illinois Avenue, this TIF will not put any public dollars at risk with generating funds for improvements to the site,” a September release stated. And, with the success of the South Illinois Avenue project, city consultant Evans has stated: “We are positive about this financing approach that puts no taxpayer money at risk and requires the developer to assume all the financial risk.”

During last week’s Council meeting, both Crosland Southeast attorney Tom Trent and Sittema reiterated neither the city of Oak Ridge nor Anderson County nor the Industrial Development Board will be liable under the plan — stating the project is “success based.” Trent said the expectation is there will be $78 million in sales annually and the project could generate between 900 and 1,000 jobs for future employees who will spend money and possibly buy homes in Anderson County.

“If we demolish (the property) tomorrow and don’t build,” Sittema explained to Council members, “there’d be no ‘increment’ generated. The only way it works is with a public investment.

“If you don’t approve, there’s no deal … period. Safeguards exist; this is a success-based project.”

Oak Ridge City Manager Mark Watson — as well as Sittema, Trent and Murphy of Crosland Southeast — are expected to speak during the opening comments period of tonight’s Anderson County Commission meeting. In addition to the Oak Ridge project, Crosland Southeast has also developed projects in several other Southeastern communities including the Biltmore Town Square in Asheville, N.C., and the Providence Marketplace in Mt. Juliet, Tenn.

Working with the city of Oak Ridge for the past several months, Crosland Southeast intends to develop and implement a plan that will convert the once-thriving Mall site into a multi-use “work-live-play-shop” destination that will attract shoppers and young people to the center of town.